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Thomas, Samuel Evelyn 
The Macmillan report 



A Short Summary of its Main Points 


S. EVELYN THOMAS, B.Com. (Lond.), Cert. A.I.B., 

With the Compliments of the 


LONDON OFFICE AND LECTURE ROOMS - 40-42, Queen Victoria St., E.G. 4. 


For some years past there has been growing support for the view 
that the present conditions of depression in this country are largely due 
to the faulty organisation of our banking and credit system and to the 
monetary policy pursued by the authorities during the last decade. 

Accordingly, in November, 1929, the Government set up a Committee 
of economists and business men, under the Chairmanship of Lord 
Macmillan, " to enquire into banking, finance and credit, .... and to 
make recommendations calculated to enable these agencies to promote 
the development of trade and commerce and the employment of 
labour ". 

After many months of exhaustive investigation, during which a large 
number of witnesses from banking, commercial, industrial, professional 
and academic circles were examined, the Committee issued its Report, 
Cmd. 3897, dated July, 1931. 

Part I of the Report is devoted to an historical survey of the banking 
and monetary systems here and abroad ; the international gold 
standard, its functions, objectives and conditions ; the economic 
position of Britain ; developments in the economic situation since 
1925 ; the fall in world prices and the influence of monetary policy 
on the price level. 

Part H, with which we are primarily concerned, contains a number 
jd recommendations whose main purport should be 




The Committee points out that the present troubles of this country 
arc neither wholly domestic nor wholly international in character. 
The recent increase in unemployment is, it is true, due in the main to 
the " world depression " ; but before the world depression we had a 
domestic problem of over a million unemployed ; and even after the 
troubles of the world as a whole are redressed it would appear that the 
domestic problem is likely to remain. The Committee hence found it 
necessary to consider proposals relating to both international and 
domestic monetary policy. 


Britain has necessarily suffered severely from the depressed inter- 
national situation because of her markedly " open " position, i.e., her 
extreme dependence on foreign trade, on her income from foreign 
investments and on her profits as international banker, merchant and 
financier. In such circumstances, the disequilibrium associated with 
prolonged unemployment may be due to any of three factors : (a) that 


in this country selling prices do not adequately cover costs of production ; 
(b) that similar conditions exist throughout the world ; and (c) that our 
costs of production are above those of our competitors. 

The Committee attributes our unemployment mainly to the first and 
third of these, and expresses the opinion that the disparity between our 
costs and those of our competitors is due not so much to the inefficiency 
of our industries as to the fact that sterling costs of production did not 
adjust themselves to the rise in the value of sterling which was 
involved by our return to the gold standard. The effect of this lack 
of adjustment has been intensified by the world-wide collapse in 
prices, and because, though our export industries have reduced their 
own costs, that reduction has been nullified by an increase in the 
costs of " sheltered " services, such as transport, which enter into the 
prices of all our products. 




After its exhaustive review in Part I of the Report of the working 
of the gold standard, both national and international, the Committee 
expresses the opinion that, so far as this country is concerned, the 
sacrifices involved in returning to the gold standard at the pre-war 
parity have not been justified by the anticipated advantages of external 
price stability. 

Difficulties in the Operation of the Gold Standard. 

(1) The effects of the re-adoption of the gold standard in different 
countries varied. In Great Britain our policy of deflation 
meant that the existing level of sterling incomes and costs 
was relatively too high in terms of gold. This necessitated 
a downward adjustment, pending which industries subject 
to foreign competition were at a disadvantage. In France 
and Belgium, the policy of devaluation gave an artificial 
advantage to export industries, pending an upward adjust- 
ment of costs. 

(2) International lending power has been re-distributed, largely as 
a result of the character of the final settlement of the War 
debts, by which Britain resigned her own net creditor claims 
in favour of France and the United States. Consequently, 
the surplus available for lending has relatively increased in 
the latter two countries while Great Britain has a smaller 
surplus, further reduced since 1925 by the adverse effect of 
the return to gold on her visible balance of trade. Instead of 
using their receipts as Great Britain used hers, in increasing 
imports or in making additional long term foreign loans, 
these two countries have required payment of a large part 
of their surplus either in gold or in short-term liquid claims. 


This position can only be temporary, since if a creditor 
country is unwilling to lend its surplus, its own export trade 
must be destroyed through the relative reduction in the gold 
costs of other countries. This effect has been delayed by the 
sterilisation of gold imports in the creditor countries, France 
and U.S.A., and by the inelasticity of wages and other costs 
in the debtor countries. 

The Committee concludes, however, that the promise of international 
co-operation and the dependence of this country on overseas trade 
and on invisible exports make it desirable that we should maintain 
the gold standard at the present parity. 


The fall in wholesale commodity prices has adversely affected share- 
holders and entrepreneurs and has led to an increase in unemployment. 
A rise in prices, however, would transfer purchasing power from those 
in receipt of fixed incomes to the shareholder and entrepreneur and 
those whose employment is increased. Moreover, it would lead to 
a decrease in the burden of war debts. 

Hence, the Committee concludes that the International Price Level 
should be forced up to the 1928 level by the Bank of England and 
other central banks working in the closest co-operation. Although this 
clearly involves a system of international currency management, and 
manifold difficulties which only experience can solve, it should, 
nevertheless, be " the prime object of international statesmanship " to- 
attain the new level of prices and, having achieved it, to maintain it 
with as much stability as possible. 


" The monetary system of this country must be a Managed 
System ". The main objects of a sound monetary policy (a) 
maintenance of the parity of the foreign exchanges ; (ft) the avoidance 
of the Credit Cycle ; and (c) the stability of the price level cannot be 
achieved automatically, as was thought to be the case under the old gold 
standard. They require the constant exercise of knowledge and 
judgment by an institution of ripe experience, great resources and 
unchallengeable authority. Hence 

The managing authority should be the Bank of England ,. 

" an excellent instrument for the purpose ; independent of political 
influences, yet functioning solely in the public interest ; with long 
traditions and experience and clothed with vast prestige, yet not 
distrustful .... of evolutionary change or hesitant of new respon- 
sibilities ". The Committee suggests that the Bank of England should 
endeavour to promote the stability of output and of employment 
at a high level by influencing the regular flow of savings into investment 
at home and abroad. The banking system can supply short-term loans 
but funds for long-period investment must be provided from sources 
outside the banking system. The machinery of investment must be 
so adjusted that a proper balance shall exist between facilities for 
domestic and foreign borrowers. 



In brief, the Committee concludes that the objectives of our monetary 
policy should be : (a) to adhere to the gold standard at the existing 
parity ; (b) to use our influence to raise the international price level, 
i.e., to lower the value of gold ; and (c) to maintain the stability of 
national and international prices at the new level. Thus 'both 
permanent and temporary measures are called for. 


Stability of international prices over long and short periods can be 
maintained only by co-operation among central banks. Over long 
periods stability is largely a question of gold reserves in relation to 
credit. Stability over short periods in order to mitigate the Credit 
Cycle is a question of co-operative monetary management. 

Central Bank Reserves. 

The problem of the inadequacy of the world's gold stocks and future 
gold supplies is not regarded as immediately pressing, particularly as 
gold currencies no longer circulate and gold stocks are concentrated 
in the reserves of the central banks. 

The sole use of gold reserves to-day is to enable a country to meet 
temporary deficits in its international balance of payments. Yet in 
many countries legislation fixes a definite proportion between the total 
reserves of gold or foreign gold exchange and the volume of notes 
issued by the Central Bank. Such a basis is now almost meaningless 
and has the effect of forcing a drastic restriction of credit whenever 
the reserve approaches the legal minimum. Greater freedom in 
the use of Central Bank reserves is, therefore, desirable. 


The Committee endorses the views expressed in the second interim 
Report of the Gold Delegation of the Financial Committee of the 
League of Nations and suggests the following principles for the guidance 
of central banks generally : 

(1) Gold standard countries should agree not to allow gold coins 
or gold certificates to pass into circulation. 

(2) Central banks should collectively consider whether national 
legal requirements as to gold reserves should be relaxed or 
tightened. At the present time they should probably be 

(3) Central banks should be permitted, at their discretion, to regard 
balances with central banks in other gold standard countries 
or with the Bank for International Settlements as the 
equivalent of gold for all purposes. 

(4) Central banks must not be unduly limited in their power to 
expand credit without a corresponding increase in their gold 
holdings, or to restrict credit otherwise than by a restriction 
of such holdings. 

In this way, the available quantity of monetary gold would not 
limit the available supplies of currency and bank credit, and conse- 
quently need not affect general price levels. 


Obstacles facing Central Banks. 

(1) Non-monetary causes of instability nullifying effective con- 
trol, e.g., political troubles, war debts, seasonal variations, 
changes in tariffs, in fashion and in demand, over-borrowing 
by some countries and over-lending by others, rigidity of 
economic conditions and especially of costs of production, 
and local or general lack of confidence. 

(2) Divergence between the interests of their own country and 
those of the rest of the world. 

(3) Inadequate control over the monetary machine and its working. 
Neither the Federal Reserve system, the Bank of France nor 
the Reichsbank has as complete a control over the creation 
of credit in their respective countries as has the Bank of 
England, whose control, within the limits of the international 
standard, is " remarkably complete ". Nevertheless, even if 
the central bank can control the amount of money, it cannot 
control the uses to which it is put. This is the sphere of the 
commercial banks. 

Central Bank Control over Bank Credit. 

A central bank should regulate the volume and price of bank credit 
so as " to maintain output and employment at the maximum compatible 
with adherence to the international gold standard and with maintenance 
of the stability of the international price level ". To do this, it must 
watch not only " the short-money market, the gold movements and 
the pressure on the exchange and conditions abroad, but also the 
internal price level, the unemployment figures and the capital market". 
It is reiterated, however, that owing to the international effects of 
monetary conditions, effective internal control can be achieved only 
by concerted action by all central banks. 

Summary of Conclusions Relative to Central Banking Policy. 

(1) The aim of central banks should be to maintain the stability 
of international prices over both long and short periods. 

(2) This implies the regulation of the volume and terms of bank 
credit so as to maintain stability in the rate of new investment 
and new enterprise, both at home and abroad. 

(3) Central banks should frequently confer to decide on the 
general tendency of their individual credit policies, without 
prejudice, however, to the individual discretion of each 
institution to safeguard its national interests by altering its 
own bank rate, or by attracting or discouraging gold imports. 

(4) Whilst each central bank should retain complete autonomy, 
it should aim at avoiding unnecessary imports of gold. Its 
duty should be to prevent unbalanced internal conditions 
from creating international instability, and, to this end, 
it should endeavour to combat any national tendency to 
maintain too high a proportion of liquid investments or to 
undertake an excessive amount of long-term lending. 


To meet the present emergency, creditor countries which have been 
requiring balances to be paid in gold or short-term liquid claims should 
be induced to lend their surpluses and to buy goods. Loans should be 


made to solvent borrowers to finance new productive enterprises and 
should be made either to foreign borrowers or to home borrowers. To 
this end central banks should (a) endeavour to remove existing 
hindrances to foreign lending, and (b) maintain cheap credit in their 
money markets. It is essential that concerted action be taken, as 
increased lending or buying by one creditor nation might result in the 
claims against it being used, not to buy more goods, but to meet 
the demands of the other creditor nations. 

The task is two-fold : (a) to attract borrowers by low rates of interest 
on long-term loans, and (b) to remedy the shortage of sound borrowers 
for new enterprise. The first of these objects may be attained if central 
banks exert their influence to promote public confidence in the 
duration of low short-term rates, and to lower deposit rates 
so as to encourage investment. The second object involves some 
action to reinforce the credit of borrowers and so overcome the 
unwillingness to lend which has followed the extensive unwise use of 
borrowed funds. The difficulty might be overcome by some form of 
guaranteed credit under a state-aided international guarantee fund or 
by the establishment of a powerful international financial corporation 
to safeguard the interests of investors in foreign loans. 



The volume of bank deposits has now a more important influence on 
monetary conditions than has the volume of cash, notes being used 
for few purposes except wage payments and small transactions. Hence 
an increase in the active note issue is not so much a cause as 
a result of trade activity, this activity in turn being traceable to an 
expansion of the Bank's deposits. Yet the Bank is not regulated in 
respect of deposits. This, however, is to the advantage of central 
banking operations. What is required is more elasticity with regard 
to the note issue. 

The provisions made by the Act of 1928 are inadequate, for the 
existence of a fixed fiduciary issue involves the immobilisation of gold 
for export purposes to the extent of the difference between the fiduciary 
issue and the actual circulation. Moreover, an approach to the 
Treasury under existing provisions for powers to increase the note 
issue may be interpreted as a sign of weakness and give rise to 
undesirable nervousness. The Bank of England should, therefore, 
have greater freedom with regard to its reserves and should be 
allowed to reckon as part thereof any balances held by it with the 
Bank for International Settlements. 

Recommendations . 

(a) Parliament should give the Bank power to put into active 
circulation notes to the amount of 380,000,000 with an 
absolute maximum of 400,000,000. Temporary additional 
elasticity to be provided by reference to the Treasury. 

(b) The Bank should not allow its gold reserve to fall below (say) 
75,000,000 except temporarily with the permission of the 
Treasury. In ordinary circumstances the gold should not 
fall so low as this statutory minimum. On the contrary, 
the Committee suggests that the Bank's normal reserves of 
gold or gold exchange should be increased. 


Separation of the Departments. 

Although the separation of the Departments provides a convenient 
formula for dividing the profits of the Bank between the Bank and the 
Treasury', it has not been satisfactory from any other aspect, and is 
confusing and misleading to other than experts. The Departments 
should be amalgamated and the statements in the Bank Return 
amalgamated without preventing the calculation of the division of 
profits as before. 

Notes in Circulation. 

Of the " notes in circulation " a considerable amount is held by the 
joint stock banks as till money ; but this position could be avoided if 
the banks would increase their deposits at the Bank of England. In 
this way the amount of notes stated to be in circulation would be 
reduced to a figure more representative of notes actually in circulation. 


Before the War our liquid international assets consisted mainly of 
the Bank of England's gold and of sterling acceptances on foreign 
account. These were at least equal to and sometimes in excess of our 
short-term international liabilities. In recent years, however, London 
has conducted a vast business in international deposit banking, and 
her liabilities in respect of short-term bills and deposits held on 
foreign account greatly exceed her claims in respect of accep- 
tances. At the same time, London is now doing a larger volume of 
long-term financing than is justified by the surplus which we have 
available for long-term overseas investment, with the result that we 
are financing long-term foreign loans by short-period borrowing in 
the form of precarious foreign deposits, which can be retained in 
London only at the cost of high rates of interest. In brief, our position 
is less liquid. 

The Bank of England's liquid assets should, therefore, be 
substantially increased at the first opportunity. Bank rate 
should be used sparingly when the object is merely to balance moderate 
changes in the short-term position by attracting foreign funds. It 
should be rightly used to contract credit either at home or abroad. 

Temporary contingencies would often be better met by the Bank 
relinquishing its own liquid assets. For this reason, fluctuations in the 
volume of assets should be allowed to a greater extent than in the past 

Thus the Bank's gold reserves should be allowed to fluctuate between, 
say, 175,000,000 and 100,000,000, and they should be supplemented 
by liquid resources up to 50,000,000 held in foreign centres and with 
the Bank for International Settlements. 


The chief means by which the Bank manages the monetary system 
are : 

(1) The official bank rate. 

(2) Open market operations, e.g., the sale of securities, which result 
in a change in the aggregate amount of the Bank's private 

(3) Open market operations which may consist of changes in the 
form of the Bank's assets but not necessarily their volume. 
They may take three forms : 


(a) Purchasing and selling securities to offset gold movements 
(6) Buying long-dated securities (Consols) and selling short- 
dated securities (Treasury Bills). 

(c) Forcing the market to discount or obtain advances at the 
official rates, with the object of bringing market rates 
into closer conformity with these, by selling securities. 

(4) Adoption of technical devices for directly influencing foreign 
exchanges, e.g., sales or purchases of foreign balances (gold 
exchange methods) dealings in forward exchange, and small 
variations in the Bank's buying price for gold. 

(5) Personal influence or advice to prominent elements in the 
money market. 

In regard to (1), the Committee's views, as stated above, are that it 
should be used sparingly. 

The success which in the past has attended the Bank's open market 
operations is in itself a justification for their development, but in 
regard to (2) above, the Bank's position could be strengthened if 
it were afforded more detailed information respecting the 
nature and extent of the cash holdings and deposits of the joint 
stock banks, and if there were closer collaboration between the Bank 
and the joint stock institutions. 


The published reserves of the clearing banks show a figure of about 
10 - 5 per cent, of the deposits, comprising 6 per cent, in cash and 4'5 per 
cent, in balances with the Bank of England. But this latter figure is 
higher than is actually the case from day to day, for the averages 
are not daily averages but relate to particular days, when the reserves 
are inflated by " window dressing ". The Committee recommends 
that the process of window dressing be abandoned and that the 
London clearing banks should keep a daily average of cash, 
in bank notes and balances with the Bank of England, of not 
less than 10 per cent, of their deposits. This would involve their 
keeping larger reserves. 

A further recommendation was that returns by the joint-stock banks 
should be more informative. 

Banks other than the clearing banks should also increase their liquid 
reserves to a proportion to be determined in each case after consultation 
with the Bank of England. 

If, following frequent and regular meetings with the Bank of England, 
the banks would from time to time accept the Bank of England's advice 
as to the average figure at which to keep their reserves, it is possible 
that the relaxation or tightening up of this figure could be made an 
important part of the Bank's machinery for the regulation of credit 
and that it could usefully replace some open market operations, 
particularly if the joint stock banks' deposit rate were made more elastic. 
But these arrangements can be successful only if the joint stock 
banks are taken into the Bank's confidence and plainly informed 
of its current credit policy. 

The main object of these larger reserves is to provide the 
central bank with adequate resources with which to manage 
the monetary system. With the same object, the Committee 
further suggests that the Bank of England should consider an 
appreciable increase in the amount of its capital. 




Although British manufacturers and traders have always been able 
to find cheap accommodation, yet the relations between British banks 
aud industry have never been so close as those between German and 
American banks and industry. 

In Germany, scarcity of capital and of independent investors 
compelled the banks to supply industry with long-period as well as 
short-period capital. These responsibilities obliged them to keep in 
intimate touch with the industries themselves. 

In France, the individual investor had usually relatively small 
resources and relied on the investments suggested to him by the big 
banks which made practically all the industrial issues. 

In the United States, the great industries and railroads were 
affiliated to particular banking houses or issuing institutions which 
usually sponsor all industrial issues of well-known concerns and, in 
addition, make loans to investors and speculators either direct or 
through brokers. 

In considering the most beneficial system for British industry, the 
Committee states that progress necessitates closer association 
through appropriate organisations of the financial and industrial 

Financial leaders, through their wide international operations, are 
competent to advise not only on home conditions but also on affairs 
throughout the world. Industry is becoming more internationalised ; 
and British industry must be ready to meet American and German 
competitors who are generally financially powerful and backed by 
banking and financial groups. Without similar support, British 
industry will undoubtedly be at a disadvantage, particularly in the 
establishment of British enterprises abroad. It will, therefore, have 
to keep in close touch with institutions connected with international 
finance. Industries and financial institutions will thus have to 
co-operate so that each is thoroughly intimate with the affairs and 
position of the other. 


Particularly in the matter of investment have our financial institu- 
tions been weak. Greater attention must be given to directing our 
capital into domestic enterprise and into British-owned concerns 
abroad. Long established issuing houses assist those who invest 
abroad and frequently vouch for the issues they sponsor ; but with 
few exceptions little guidance is forthcoming in respect of home issues, 
and many ignorant investors are misled merely by the appear- 
ance of the name of a large joint stock bank on a prospectus. 

Though industry should in no way be managed by the banks, 
both industry and finance would benefit from a closer relation- 
ship between British industry and the City of London, especially 
if the intrinsic merit of industrial issues were vouched for by institutions 
<>f first-class strength and repute specialising in the finance of particular 
nulustries. It would also be better if the joint stock banks did not 
give the appearance of sponsoring any issues for which they could not 



Every industrial and financial company has to provide itself with (a) 
permanent capital and (b) seasonal or temporary credits. Sometimes 
intermediate credit also is required. 

SHORT-TERM CREDITS. The principal function of the banks is to 
provide short-term credit. This a lucrative source of business and 
the facilities afforded to British industry in this respect compare 
favourably with those available in other countries. The Committee 
concludes that " our banking system is adequate and satisfactory in the 
provision of the normal short credits to industry and their distribution." 
In this connection, however, all would benefit by a more extended use 
of commercial bills bills given by a purchaser to a supplier rather 
than mere book entries. 

INTERMEDIATE CREDIT. This is credit advanced (a) for periods ranging 
from one or two up to five years and is required for hire purchase sales, 
in which the ownership of goods is retained by the seller until payment 
is completed ; (b) for advances against deferred payment, in which owner- 
ship of goods passes to the buyer and payment is spread over a period ; 
and (c) for long term credit contracts, such as road building and 
harbour construction. 

Excellent facilities exist for these purposes for use internally, but the 
trading community does not take as much advantage of them as it 
might, especially in the first two groups. 

In the case of sales and contracts abroad, credit facilities are not 
adequate and frequently British firms have to resort to foreign institu- 
tions. To remedy this situation, British institutions should be 
established for the purpose of assisting British industry and 
trade abroad. Some of these facilities should be provided by the 
joint stock banks and other existing financial institutions. The banks 
would run no undue risk in financing longer term contracts than is their 
custom, provided they were of a sound character, and amounted only 
to a small proportion of their advances. 


Closer co-ordination between British industry and the City of London 
would be advantageous for the provision of long-dated capital, especially 
for large-scale industry. In some respects the City has better facilities 
for providing capital to foreign countries than to British industry, and 
there is need for new institutions to fulfil the following functions : 

(a) To act as financial adviser to existing companies ; 

(b) To advise as to the provision of permanent capital 

(c) To secure the underwriting of and to issue the 
company's securities to the public and, if necessary, to 
assist previously in arranging for temporary finance in anticipa- 
tion of an issue ; 

(d) To assist in financing long-term contracts at home and abroad, 
or new developments of an existing company, and to found 
companies for new enterprises ; 

(e) To act as an intermediary and financial adviser in the case of 
mergers or in the case of negotiations with corresponding 
international groups ; 

(/) To be free to carry out all types of financing business. 


Such an institution must have a substantial capital. When financing 
contracts for periods up to five years, it might be able to supplement 
its resources by the issue of its own short-term notes. It should be 
able to rely on co-operation with existing financial institutions in making 
temporary advances. It must also build up an expert staff, establish 
gradual connections with industry and instil confidence in its issuing 
ability and credit. 

Though the big joint-stock banks could perform these functions it 
" is doubtful whether the banks can with advantage depart from 
their traditional banking sphere." The same difficulty applies 
to the big private banking houses. Such institutions could, however, with 
no change in their present banking practice, take an interest in the share 
capital of an institution set up for this purpose. " The best course 
might be if the leading private institutions and the big banks 
were to co-operate in creating one or more such concerns." 
The Bankers' Industrial Development Company, at present an offshoot 
of the Bank of England, might form the nucleus of a new institution 
on the lines suggested, but it should at a convenient stage be separated 
from the Bank of England and have a separate, self-supporting exist- 
ence. To provide financial facilities for the small and medium sized 
concern the Committee recognises that it .nay be desirable to form 
yet another type of finance institution which would confine itself to 
smaller industrial and commercial issues. 


Information and statistical knowledge are also essential. The 
provision of statistics could be undertaken by the appropriate Ministries. 
In particular the publication of the following statistics in new or 
improved form is recommended : the monthly returns of the clearing 
banks ; classification of loans and overdrafts ; returns from the other 
joint stock banks and other banking institutions ; foreign balances 
and foreign liquid assets held in sterling ; the volume of acceptances ; 
the volume of cheque transactions ; the balance of trade ; the census of 
production ; the volume of wages paid ; the volume of retail sales ; the ag- 
gregate and the distribution of profits ; the value of capital construction. 

The various Government Departments responsible for the prepara- 
tion of statistics should co-operate in such work. 


The Report was signed by all members of the Committee with the 

exception of l.ord Bradbury, who dissented. Most of the other members 

u'.ol Addenda which amplified rather than disagreed with certain 

points in the main report. The chief points of the two most important 

of these Addenda are summarised here. 


Signed by Sir Thomas Allen and Messrs. Ernest Bevin, J. M. 
Keynes, R. McKenna, J. Prater Taylor, A. A. G. Tulloch. 

The signatories to this Addendum recall that in the Main Report 
it is recognised that the remedies for the world depression lie in an 
expansion of purchasing power ; in the encouragement of borrowing 
if necessary under guarantees; in a reduction in the cost of both long- 
terra and short-term credit ; and in the encouragement of enterprise 
and investment. 


But the " open " position of this country is such that the initiation 
of independent action here, without concerted action abroad, would 
subject the Bank of England to a severe strain, to meet which it would 
be necessary for us to strengthen our position by (a) improving our 
balance of trade through (i) an increase of exports, (ii) the substitution 
of home-produced for imported goods, and (b) increasing investment 
at home. 

Apart from the basic need of improving the relative efficiency of our 
industries, there are three practical courses open to us for achieving 
these objects : (a) a reduction of salaries and wages ; (b) control 
of imports and aids to exports ; (c) State assisted schemes of capital 


While recognising the urgent need for greater elasticity of money- 
incomes and the fact that an all-round reduction would be beneficial, 
the signatories emphatically reject the suggestion that a reduction 
of salaries and wages alone would offer a solution. Such a 
policy would tend to cause further falls in prices and would render 
capital charges and taxation a greater real burden ; while it would 
inevitably defeat its own object by causing similar reductions in other 

But if an all-round reduction in money-incomes becomes plainly 
unavoidable, it may be attained by : 

(a) Devaluation a policy rejected in the Main Report. 

(b) A National Treaty for a simultaneous cut a scheme which 
has many practical difficulties, but which should nevertheless 
receive consideration as a possible alternative. 

(c) Tariffs plus Bounties which would have the twofold effect 
of reducing money-incomes and improving our balance of 


The signatories give their strongest support to the third method, 
which they consider would be attended by the advantages but not by 
the practical difficulties of the two others. They justify the abandon- 
ment of the policy of Free Trade on the ground that the economic 
position of this country is in a state of chronic disequilibrium, and they 
argue that the suggested policy would bring in a useful contribution 
to the National Exchequer. Hence, in the present circumstances, this 
is regarded as the most practical plan of action likely to revive 
business confidence. 


In conjunction with a system of tariffs plus bounties, the signatories 
recommend the development of state enterprise with subsidies for 
domestic investment. In particular, the following schemes are 
suggested : (a) Rebuilding and re-planning schemes for larger towns 
and industrial centres ; (b) Refitting of our staple industries on 
modern lines; (c) Electrification of the railways as suggested by 
the recent Weir Commission. 

It is pointed out that there is no danger that such State-directed 
schemes will result in a transference of private investment since there 
is, at the moment, no lack of funds available for investment : rather 
there is a lack of confidence in borrowers. Above all it is considered 
desirable that capital development should be organised and 


planned on a national scale through a Board of National Invest- 
ment charged with " the deliberate guidance of schemes of long-term 
national investment ". 

In conclusion it is emphasized that these proposals are made not as an 
alternative to the main suggestion of raising world prices but rather 
as an " attempt to avoid the immense waste of the national productive 
resources " pending the necessary upward adjustment. 

The signatories point out that those who dissent from these views 
contend that the proposals put forward are merely temporary shifts 
which do not get to the root of the trouble, viz., the unduly high level of 
our costs of production as compared with those of our competitors 
(see Addendum III). Nevertheless, the signatories, pinning their 
faith on the ultimate recovery of world prices, maintain that we can 
continue to support permanently our improved working class standards, 
and that to seek the remedy in a reduction of salaries and wages will 
involve practical difficulties and social troubles of the first magnitude. 


Signed by Prof. T. E. Gregory. 

Whilst admitting that the great problem to be faced is the disequili- 
brium between prices and costs, Prof. Gregory points out that the 
problem cannot be solved except by co-operation between all 
countries : consequently any attempt to achieve economic isolation 
of this country by the imposition of tariffs is to be deplored as incom- 
patible with the attainment of international co-operation. 

The Two Proposed Remedies should be combined. 

Two remedies are available : to raise prices or to reduce costs. 
Each is open to certain objections which Prof. Gregory considers could 
best be met by combining the two, i.e., by raising prices and reducing 
costs. In this way the tendency for a reduction in costs to produce a 
further reduction in prices would be counteracted. He points out, also, 
that a reduction in costs need not cause a proportionate contraction 
in consumers' purchasing-power, since the effect is merely to redistribute 
the proceeds of industry, more going to the entrepreneur and less to 
the wage-earner. Furthermore, the reduction in unemployment will 
itself increase the volume of purchasing power ; and the growth in 
profits will stimulate business expansion. 

Objections to Tariffs and Capital Schemes. 

Prof. Gregory is in complete agreement with the signatories of 
Addendum 1 regarding devaluation but he differs from them funda- 
mentally on the question of tariffs, which, he considers, would tend 
to make permanent the present disequilibrium between British 
and foreign costs. He points out, too, the danger that any tem- 
porary expedient might easily become a permanent part of our 
i onomic policy. He argues that, if imports were reduced and foreign 
tmcnt were not adjusted to the changes in the balance of payments, 
gold would flow in. This gold would be used to expand credit and a 
resulting boom in home industry would check foreign investment. 
The money income of society, especially money wages, would increase. 
This would act as a stimulus to imports and a check on exports, while a 


new disequilibrium between home and foreign costs would be estab- 
lished. Thus, to prevent a collapse, a higher level of tariffs would 
be necessary. 

As regards the effectiveness of tariffs, he emphasises the fact that there 
would probably be vigorous attempts abroad to neutralise our tariffs 
and subsidy policy by anti-dumping measures. In any case the foreign 
goods which were shut out of British markets would probably appear 
in neutral markets where they would compete with our exports. 
Finally, he doubts whether the revenue from any such scheme (after 
deduction of administrative expenses and subsidies) would be sufficient 
to make the policy worth while. 

The proposals for capital development, he considers, fail to meet the 
needs of the situation since they would not greatly affect the position 
of our export industries, which contribute most to unemployment. 

The best solution is a reduction of money costs. 

Prof. Gregory suggests that the best solution put forward is the 
reduction of money-costs. He suggests that this should be effected 
as far as possible by improved methods and by spreading overhead 
costs over a larger output. To facilitate this process rationalisation 
schemes may be found necessary and here it may be desirable to invest 
the State with statutory powers. He does not agree, however, that it 
is possible, or even desirable, to effect an all-round reduction of incomes 
on the lines of a National Treaty. The shareholding class already 
suffers by reduced dividends and capital reductions and the rentier 
by increased taxation. Thus the main burden of the reduction 
must fall on wage-earners. The fall need not necessarily be confined 
to the exporting industries, but might extend to ancillary and sheltered 
trades. In any case the fall need not involve an equal reduction in 
the standard of living and, to the extent that it makes possible an 
increase of productivity, it should result eventually in a betterment 
of the standard. 

In brief, Professor Gregory contends that the tariff action, strongly 
recommended by Mr. McKenna, Mr. Keynes and the others, is merely 
a roundabout and possibly ineffective way of bringing into effect that 
reduction of costs which in his opinion is clearly imperative. 

ALL 3 FIRST PLACES won by M.C. Students 
on Two Occasions. 

At both the May, 1931, and the November, 1927, S.A.A. 

examinations, the Metropolitan College presented the winners 

of the three 

1st PLACES, i.e. Prelim., Inter, and Final. 

The Metropolitan College has thus achieved on two occasions, 
a record which cannot be equalled by any other Coaching 


Won by M.C. Students in 1930-31 

At the examinations of the Institute of Chartered Accountants in 

England and Wales and the Society of Incorporated Accountants 

and Auditors, held in 1930-31, Students of the Metropolitan 

College won : 

8 other Honours C.A. & S.A.A. 
and 540 SUCCESSES 

During the 9 years to May, 1931, English C.A. and S.A.A. 
Students of the College have won : 

103 HONOURS and over 3,700 PASSES 



A copy of the College " Accountancy Prospectus," and full par- 
ticulars of the expert postal and oral training facilities provided, 
may be obtained on application to the Secretary : 



Printed l>y \YniiTiow mid S,,ns Litmtrd. London, I)mi-.i:i!'ir :iml \Vutfonl. 
tor the Publishers. The Metropolitan College Ltd., St. AIL 

A 31120. 

HG Thomas, Samuel Evelyn 

186 The Macmillan report